COPENHAGEN, May 14 (Reuters) – Debt-stricken Danish shipping company Torm said it would not be able to comply with its financial covenants on minimum interest cover when they are tested in June if its current forecasts for freight rates are correct.
The company is working under a restructuring agreement with a group of banks and hedge funds who threw it a lifeline and took control in 2012 after a plunge in shipping markets.
“Torm has already approached the lenders and expects to obtain a covenant waiver in advance of the test,” it said in a statement.
Torm reported first-quarter core earnings lower than in the same quarter last year and lowered its guidance for 2014.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to $21 million from $36 million last year.
The company narrowed its expectations for the full-year, seeing core profit of between $70 and $100 million versus an earlier forecast of $70 to $110 million.
“The first quarter is usually a strong period for product tankers, but this year freight rate improvements were partly offset by limited arbitrage trades and continued low European demand,” chief executive Jacob Meldgaard said in the statement.
Net interest-bearing debt fell to $1,662 million from $1,718 million three month earlier.
The decrease in the first quarter of 2014 is primarily a result of the repayment of debt in connection with the delivery of vessels held for sale.
Torm’s restructuring agreement triggered the sale of 13 product tankers in the first quarter to entities controlled by Oaktree Capital Management, which is one of Torm’s backers.
Oaktree will place the 13 vessels under Torm’s commercial management.
Upon completion of the transaction in the second quarter of 2014, the associated vessel financing will be fully repaid, thereby reducing the Company’s debt by $223 million. (Reporting by Ole Mikkelsen; Editing by Simon Johnson)
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